Bobby Jindal's Tax Reform to Eliminate Louisiana's Income Tax

Posted by root | 16 Jan, 2013

There has much debate, especially in conservative circles, about a national sales tax or a value added tax as a way to raise significant revenue for the federalvgovernment while reducing its reliance on personal and corporate income taxes, if not eliminating them altogether. In Louisiana Governor Bobby Jindal is proposing major tax reform by moving the state in that direction and possibly bolstering his rumored presidential ambitions.

Last week Gov. Jindal proposed eliminating the state personal and corporate incometaxes and replacing them with an increased state sales tax from four percent to seven percent. The idea would be to make these new sales taxes revenue neutral.

The idea of tax reform has been tried before in Louisiana. Former Governor Buddy Roemer proposed massive changes in Louisiana’s tax structure. While the proposal had the support of “good government” types and the newspaper editorial boards across the state, it was the part of his plan to eliminate the current homestead exemption and increase state income taxes that doomed his effort. A scaled back proposal was later defeated by voters. A similar effort by former Governor Edwin Edwards met the same fate. Gov. Jindal’s proposal is to eliminate not increase the state income tax. No mention has been made to modify Louisiana’s homestead exemption.

The next presidential election is less than four years away. Countless candidates will be testing the waters between now and 2016. Rumors by the media say Gov. Jindal will be one of them. It is apparent that the governor has been building his resume for higher office. When he was elected his first step was to call a special legislative session to implement, for the first time in Louisiana, mandatory personal financial disclosure for elected and appointed officials. Gov. Jindal has been a consistent opponent of higher taxes and has implemented massive budget cuts to balance the state budget. He has been criticized for it, but he has stood his ground. In the last presidential election, Bobby Jindal campaigned extensively for Republican candidates across the country no doubt building relationships and IOU’s from the candidates he supported. And this year he will head the National Republican Governor’s Conference. These will be viewed by many as the trademarks of a future candidate. If Gov. Jindal is able to eliminate the state income tax, he will add a major feather to his cap and a possible presidential bid.

Putting politics aside the elimination of the income tax could be a boom for Louisiana if done right. Job creation in states that have no state income tax has fared much better than in states where such a tax is levied. But the levy of taxes is always a tradeoff. Government needs to raise revenue to provide services to its constituents. When revenue is down or one tax is eliminated or reduced, it is likely another tax will be increased or a public service will be scaled back. In Louisiana where tax collections are down and taxes have not been increased, deep budget cuts have been made to universities and hospitals.

Taxing policy should be designed to raise sufficient revenue for government to provide services without those taxes being burdensome on the taxpayer or the state and local economies. Those policies should be simple and easy to understand and should encourage economic development and population growth.

Louisiana is on the verge of a major shift in its philosophy of taxation. States without income taxes are doing quite well when it comes to jobs. For Louisiana to succeed it must substitute the revenue it receives from the income tax withrevenue from other sources. In this instance the governor is proposing higher sales taxes as well as expanding the tax base – things and services that will be subject to the sales tax that are currently exempt.

So forget one person’s possible future political ambitions and focus on what is good for the state. The concept of eliminating the income tax is good for Louisiana, her people, and economic development. But it is up to Gov. Jindal and the legislature to put forth a plan that is truly revenue neutral and will get the state out of its current and certain future budget crises that have and will plague the state in the years to come. The details are critical, but the idea is worth pursuing.